Funds lose taste for coffee

By Nigel Hunt

LONDON (Reuters) - Investment funds appear to have lost their taste for coffee after helping fuel a run-up to a 12-1/2-year peak in London earlier this year, and prices look unlikely to rally significantly from recent lows.

The prospect of bumper crops in top producers Brazil and Vietnam later this year has helped dampen enthusiasm among investors, while funds have also become more selective in their commodity investments after major reversals in several markets.

"I think they've lost their appetite a little bit. A lot of funds have been burnt in other commodities like CPO (crude palm oil) where you have really huge (price) swings, cotton as well," said Standard Chartered analyst Abah Ofon.

"I think funds are a bit more apprehensive now and so they have really cherry-picked commodities they would like to get into," he added.

Prices for London robusta coffee on the benchmark second month LKDc2 climbed to $2,815 a tonne in early March, buoyed by aggressive buying by investment funds, but then fell back sharply to $2,119 on Friday, a drop of 25 percent.

Arabica coffee in New York has followed a similar pattern with the second month KCc2 rising to $1.7190 a lb in late February, the highest level in 10 years, before sliding around 25 percent with prices dipping below $1.30 last week.

"The feeling I have is that funds thought it was a one-way bet which obviously it wasn't," Ofon said.

EQUITIES RECOVER